Two new programs devised by insurance brokers aim to offer some relief from the peril paranoia that has made certain kinds of commercial liability protection either unobtainable or unaffordable.
One is designed to provide companies with protection against environmental pollution liability; the other will link a network of insurers willing to pool their resources to write excess liability insurance, mainly for medium-sized companies that have often had difficulty obtaining it.
Alexander & Alexander Services, an international insurance brokerage and financial services giant based in New York, has launched a new company to provide protection against pollution liability.
This has become crucial for owners and operators of hazardous waste treatment, storage and disposal facilities, because the government requires them to carry insurance or put up some other form of financial guarantee against environmental damage that might occur at any time--even years after a site has been closed. Such insurance had all but dried up.
Alexander & Alexander formed Environmental Protection Insurance Co., or EPIC, under the terms of the Risk Retention Act and the renewed Superfund Act, both of which Congress passed last October.
The Risk Retention Act allows companies, nonprofit groups and municipalities to form self-insurance pools if they engage in businesses or activities that are either similar or related by a common risk. The Superfund Act, which provides funds for cleaning up abandoned hazardous waste dumps, extends this risk-retention concept to the environmental field.
The new federal laws preempt most state regulation over such self-insurance pools, whose contributors, in effect, create their own private insurance company.
EPIC, based in Illinois, will provide primary insurance protection against losses due to "gradual, sudden and accidental" damage to the environment. Its clientele is expected to be mainly small to medium-sized firms, but membership is open to all companies sharing the common risk, said W. Lee Carter III, the brokerage's director of research and development.
The new company will provide participants with $5 million of primary insurance coverage per claim (up to a total of $10 million).
"We believe a broad-based risk retention group will enable us to succeed where others are experiencing significant obstacles," said Carter, who is based in Dallas. "By working on the primary-coverage level, we will be able to rely more heavily on premiums rather than on capital for the funding source of the program."
Carter said EPIC seeks to attract 500 participants, each of whom will contribute from $20,000 to more than $1 million to a self-insurance pool, depending on the risk each represents. The average is expected to be about $200,000, he said.
Meanwhile, Swett & Crawford Group, a wholesale insurance brokerage based in Los Angeles, has assembled a computer network that links a dozen insurers who have agreed to pool commercial liability coverage in a single policy, enabling medium-sized firms to obtain the protection they need without having to maintain a sheaf of separate policies, each with its own terms and premiums.
Swett & Crawford's National Excess Wholesale Slip--called NEWS--links participating insurance companies that have agreed to write excess liability coverage. ("Excess" coverage, intended as protection against a catastrophe, pays off only after the benefits from "primary" coverage are exhausted.) Since commercial liability insurance grew scarce in the early 1980s, individual firms have scrambled among dozens of insurers, seeking to pick up a piece of protection from one company and successive layers from others.
"We are offering a one-stop shopping service to corporate buyers and their retail brokers who face a challenge because of the established fragmented method of putting together adequate excess coverage," said Joseph L. Fox, Swett & Crawford's president and chief executive.
Through NEWS, bids for liability insurance are electronically circulated among the participating insurance companies. Each can review the specifications and sign on for whatever portion of the risk they wish to accept. The goal of the paperless system is to reduce to 72 hours the four to six weeks that it can now take a broker to put together an insurance program, said Gus Gallup, a Swett & Crawford's regional broker in Denver.
"The advantage to the buyers is they're going to get adequate limits, one policy, one wording and one premium," Fox said. Protected customers include manufacturers, retailers, chain stores, apartment complexes and hotels.
The service offers liability coverage of up to $20 million, although the upper limit written so far is $12.5 million. Fox said he expects NEWS to generate $100 million in premiums in its first full year.